ETF Talk

Consider Using an Energy-Focused Commodities Fund

The iShares S&P GSCI Commodity-Indexed Trust (GSG) provides investors with exposure to a broad range of commodities.

The fund does this by following the S&P GSCI index, which is composed of a diversified group of commodity futures. A unique feature about GSG is that it is not a standard exchange-traded fund (ETF), but rather a commodity pool.

The commodity pool uses investor contributions as leverage in the commodities trading markets. Another distinction is that commodity pools are regulated by the Commodity Futures Trading Commission and not the Securities and Exchange Commission (SEC).

GSG does not hold contracts in the underlying commodities (energy, industrial and precious metals, agricultural and livestock) like many other funds, but instead holds only long-dated futures contracts on the GSCI itself, as well as substantial cash and treasury bills as warranted. Investors can use GSG as an easy way to diversify their portfolios, since the fund’s huge total assets of $1.45 billion and daily trading volume of 1.2 million give it great liquidity.

In terms of offering exposure to various commodities, GSG more or less covers the normal broad spectrum. However, the fund does place a heavier emphasis on energy commodities. WTI crude, crude oil, natural gas and other energy commodities make up 61% of the index’s exposure. Agriculture commodities account for 16%, while industrials metals compose 11%, livestock take 7% and precious metals comprise 4%.

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